Commission of the European Communities v Federal Republic of Germany (116/82)

Contents

Judgment of the Court18 September 1986^noteIn Case 116/82Commission of the European Communities, represented by its Legal Advisers, Gianluigi Campogrande and Peter Karpenstein, acting as Agents, assisted by Meinhard Hilf, of the University of Bielefeld, with an address for service in Luxembourg at the office of Georges Kremlis, Jean Monnet Building, Kirchberg,vFederal Republic of Germany, represented by Jochim Sedemund, Rechtsanwalt, Cologne, with an address for service in Luxembourg at the Embassy of the Federal Republic of Germany,THE COURTcomposed of: Lord Mackenzie Stuart, President, T. Koopmans, U. Everling and K. Bahlmann (Presidents of Chambers), O. Due, Y. Galmot and C. Kakouris, Judges,Advocate General: J. MischoRegistrar: K. Riechenberg, acting as Administratorhaving regard to the Report for the Hearing and further to the hearing on 20 February 1986,after hearing the Opinion of the Advocate General delivered at the sitting on 17 April 1986,gives the following

Judgment

1By an application lodged at the Court Registry on 4 April 1982 the Commission of the European Communities brought an action under Article 169 of the EEC Treaty for a declaration that, by adopting and applying certain provisions of the Wine Law of 14 July 1971 (BGBl. I, 1971, p. 893) and the implementing order of 15 July 1971 (BGBl. I, 1971, p. 926), the Federal Republic of Germany has failed to fulfil its obligations under the provisions adopted within the framework of the common organization of the market in wine.

2In the course of the procedure the Commission withdrew its complaints against the Federal Republic of Germany regarding three of the specific infringements, but maintained the claims made in its application that the defendant should be ordered to pay the costs in their entirety. The proceedings are therefore limited to the question whether it is permitted to produce quality wine psr outside the specified regions or their immediate proximity under Paragraph 64 of the Wine Law even after the time-limit fixed by that provision.

The relevant Community rules

3The special provisions relating to quality wines psr were laid down in Regulation (EEC) No 817/70 of the Council of 28 April 1970 (Official Journal, English Special Edition 1970 (I), p. 252) which was replaced by Council Regulation (EEC) No 338/79 of 5 February 1979 (Official Journal 1979, L 54, p. 48). Article 3 of Regulation No 817/70 provides that each Member State is to draw up a list of vine varieties suitable for producing quality wines psr and that vine varieties which do not appear on the list must be removed. Article 3 (3) provides for the possibility of derogating from the removal requirement for a period of three years.

4Article 5 of Regulation No 817/70, which corresponds essentially to Article 6 of Regulation No 338/79, provides as follows:1.(a) Quality wines psr may be obtained only from grapes of vine varieties which have been harvested within the specified region and which appear in the list provided for in Article 3(1).This provision shall not prevent quality wines psr from being obtained under the conditions specified in Article 3 (3) or produced according to traditional practices.(b) ...2. The processing of the grapes referred to in paragraph 1 (a) into must and from must into wine shall be carried out within the specified region where the grapes were harvested.However, subject to adequate provisions as regards control, such processing may take place outside that region, where the rules of the producer Member State permit it.3. Detailed rules for the application of this Article shall be adopted in accordance with the procedure laid down in Article 7 of Regulation No 24.They shall cover in particular:(i) provisions by which Member States may authorize derogations from the rules which lay down that the processing of grapes into must and of must into wine should take place within the specified region;(ii) the list of quality wines psr which may be produced according to the traditional practices referred to in paragraph 1.’

5On the basis of the power given to it by Article 5 (3) of Regulation No 817/70, the Commission adopted Regulation No 1698/70 of 25 August 1970 on certain derogations concerning the production of quality wines produced in specified regions (Official Journal, English Special Edition 1970 (II), p. 579). Article 1 (1) of the regulation provides as follows:‘When a quality wine psr is being produced, the processing of grapes into musts or of musts into wine under the conditions provided for in the second subparagraph of Article 5 (2) of Regulation (EEC) No 817/70 may take place only if authorized.’Article 2 (1) provides as follows:‘The competent authorities of the producer Member States may grant authorization for the processing referred to in Article 1 only to wine makers using grapes or grape musts intended for processing into a quality wine psr and if their establishment is situated in the immediate proximity of the specified region in question.’

6Article 3 provides as follows :‘The grapes and grape musts referred to in Article 1 must be held separately from grapes and grape musts which are unsuitable for yielding quality wines psr ...’Article 4 requires the Member States to take‘the necessary measures to ensure control of the storage and movement of the grapes and musts referred to in Article 1 and the making of wine from them.’The purpose of those articles is, according to the third recital in the preamble to Regulation No 1698/70, to avoid the risk of fraud involved in the authorization of wine production outside the specified region of production. That recital states that wine production outside the specified region of production must be limited ‘to cases where the grapes and grape musts are made into quality wines psr in the immediate proximity of the specified region.’

The relevant provisions of national law

7Article 5 (1) of the Wine Law, which is headed ‘Processing into quality wine outside a specified winegrowing region’ provides as follows:‘In accordance with the second subparagraph of Article 5 (2) of Regulation (EEC) No 817/70 and the implementing regulations adopted by the Council and the Commission of the European Communities, the processing of grapes into must and of must into wine for the production of quality wine psr may also be authorized outside the specified region where the grapes were harvested. The governments of the winegrowing Länder on whose territory the processing is to take place shall designate the authorities empowered to grant such authorization.’Pursuant to Paragraph 64 of the Wine Law, such authorization‘may be granted until 31 August 1976 even for processing carried out within the German winegrowing region ... provided that it accords with a traditional practice within the meaning of the second subparagraph of Article 5 (1) (a) of Regulation (EEC) No 817/70’.

Substance

8The Government of the Federal Republic of Germany disputes the validity of Article 2 (1) of Regulation No 1698/70 of the Commission in so far as it restricts the possibility of granting special authorization solely to establishments situated in the immediate proximity of the specified regions. Essentially it puts forward three submissions with regard to the invalidity of the provision.

First submission: the Commission exceeded its powers

9According to the German Government the grant of authorization in respect of production outside the specified regions is governed directly by Article 5 (2) of Regulation No 817/70 which permits the grant of such authorization in all cases where production is carried out according to ‘traditional practices’, subject only to adequate provisions as regards control. In its view no other restriction, whether of a geographical or temporal nature, is placed on the Member States. Consequently, the power given to the Commission in Article 5 (3) serves merely to give it responsibility for checking that the powers reserved to the Member States under Article 5 (1) and (2) are not abused. By adopting Article 2 (1) of Regulation No 1698/70, the Commission encroached upon the powers given to the Member States under Article 5 (1) and (2) and thereby rendered nugatory their right to authorize the production of wine outside the specified regions since it left the Member States no possibility of taking into account criteria based on traditional factors, special situations or the different structures of processing undertakings or the winegrowing areas belonging to them.

10With regard to the facts, the German Government contends that only 0.5% of all undertakings are situated outside the winegrowing regions. They are undertakings which have been established for decades — or even centuries — and some of them own vineyards in more than one region. It also states that 90% of the grapes grown in the Federal Republic of Germany are processed into quality wine psr. Finally, it contends that the possibilities of exercising supervision are the same and are even more effective in the regions at issue, in view of the large number of inspectors.

11The Commission considers that the power granted in Article 5 (3) is more extensive and allows it to lay down detailed rules regarding the possibility of granting authorization in exceptional cases. In its view it had exercised that power lawfully. It had stayed within the limits of its discretion in finding some way of establishing a single market. The ‘immediate proximity’ criterion was adopted with the unanimous approval of the management committee, it was an objective criterion and it allowed the Member States scope to give their own concrete definition of the indeterminate legal concept of ‘immediate proximity’. In contrast, the criteria put forward by the German Government are not in conformity with Community policy in the wine sector which seeks to improve the quality of wine production and to protect quality wines psr.

12It must be noted that according to the second recital in its preamble Regulation No 817/70 falls within the framework of the policy laid down by Regulation (EEC) No 816/70 of the Council of 28 April 1970 laying down additional provisions for the common organization of the market in wine (Official Journal, English Special Edition 1970 (I), p. 234) and is intended to achieve the same objectives as the latter, that is to say the development of a policy of quality in winegrowing which is bound to lead to an improvement of conditions on the market, and, as a result, to an increase in outlets.

13According to the fourth recital in the preamble to Regulation No 817/70, ‘even though it is necessary to take into account traditional conditions of production, a common attempt to harmonize quality requirements must nevertheless be made’. The regulation lays down basic rules enabling each quality wine psr to be distinguished whilst, nevertheless, giving the Member States the possibility of derogating from those rules in exceptional cases.

14Of the provisions at issue in this case, Article 5 (1) of the regulation lays down the rule that quality wines psr may be obtained only from grapes of vine varieties which have been harvested within the specified region and which are listed. Two possible exceptions to that rule are provided for: the first permits the presence of certain vine varieties for three years and the second the production of quality wines psr according to traditional practices. In addition, Article 5 (2) lays down the rule that the processing of the grapes into must and from must into wine must be carried out within the specified region where the grapes were harvested; the rules of a Member State may permit an exception to that rule subject to adequate provisions as regards control.

15However, Article 5 (1) and (2) merely set out general rules without providing detailed rules for their application. Under Article 5 (3) the Commission was empowered to lay down the detailed rules for the application of Article 5 to cover, in particular, the possibility for national rules to derogate from the rule that grapes are to be processed within the specified region where they were harvested and the list of quality wines psr which may be produced according to traditional practices.

16It follows from the aim and scheme of the regulation as described above that the second subparagraph of Article 5 (1) (a) concerning quality wines psr ‘produced according to traditional practices’ is an exception merely to the rule concerning the exclusive use of certain vine varieties and therefore relates only to vine varieties and not the regions where the grapes are harvested; the exception was to be defined more precisely by the Commission in an implementing regulation drawing up a list of such quality wines psr. Consequently, it is necessary to reject as without foundation the interpretation put forward by the German Government according to which that provision authorizes not only the temporary continued use of vine varieties other than those listed but also the continued use of traditional practices in processing grapes and must, without the restriction imposed by the rule that the grapes must be processed within the region where they were harvested.

17It also follows from its wording and its place in the scheme of the rules as described above that Article 5 (3) delegated to the Commission the power to define more precisely and circumscribe the limits within which the rules of the Member States may lay down the conditions for the grant of authorization for processing outside the specified region. Consequently, the interpretation put forward by the German Government, according to which the power conferred on the Commission does not comprise such definition and circumscription but solely the adoption of effective rules for controlling abuse, must be rejected as without foundation.

18It is therefore necessary to reject the German Government's contention that the Commission was not empowered by Article 2 (1) of Regulation No 1698/70 to provide that authorization can be given only to establishments ‘situated in the immediate proximity of the specified region in question’.

Second submission: Breach of the principle of proportionality

19By this contention submitted in the alternative the German Government maintains that even if the restriction of the possibility of winemaking solely to regions ‘in the immediate proximity of the specified region’ does not in principle go beyond the limits of the powers conferred by Article 5 (3) of Regulation No 817/70, in this case the restriction is not a necessary and appropriate measure to avoid the risk of fraud and to ensure that wine is produced in a proper manner which are the objectives the Commission alleges it has pursued. The risk of fraud could be avoided, in the German Government's view, by the less coercive means of increased supervision which would be effective regardless of the distance the grapes were transported. The proper production of wine is not linked exclusively to the particular characteristics of one region. The position may be different in other Member States but in the Federal Republic of Germany the actual winemaking technology applied in the production of quality wines does not differ from one region to another.

20The Commission considers that the measure at issue constitutes a necessary, appropriate and adequate means of implementing the policy laid down by the Council. The measure reduces the risk of fraud. The certainty that the grapes and musts come from specified regions is one of the economic conditions necessary to create a market distinct from that of other wines. Finally, the Commission observes that the measure at issue is also in accordance with international efforts to ensure better protection for appellations of origin.

21It should be noted that, according to the Court's case-law, the principle of proportionality requires the measures imposed by the Community institutions to be appropriate to achieve the intended objective and not to exceed the limits of what is necessary to that end.

22It follows from the third recital in the preamble to Regulation No 1698/70 that Article 2 (1) is intended to achieve two objectives: to ensure the quality of quality wines psr which, by definition, must as a general rule be produced in the region where the grapes were harvested and to avoid the risk of fraud involved in the practice of producing wine outside the specified region which is authorized in exceptional cases. The restriction of that practice solely to areas in the immediate proximity of the specified region is therefore appropriate to accomplish that aim.

23Moreover, in considering that restriction to be necessary to achieve the said aim, the Commission has not exceeded the discretion given to it by the enabling provision in question. The freedom to produce wine irrespective of the place where the grapes were harvested, even where it is a long distance away, might jeopardize the effectiveness of the policy of quality and engender confusion amongst consumers who normally expect quality wine psr to be produced in the specified region where the grapes were harvested as indicated in its appellation. In addition, it is obvious that effective supervision is jeopardized inasmuch as it has to cover a larger geographical area.

24Consequently, the German Government's second submission must also be rejected.

Third submission: Infringement of fundamental rights

25The German Government maintains that the undertakings affected by the prohibition of winemaking are thereby forced to cease business since their plant cannot, from an economic point of view, be converted or sold on suitable terms. Even if some undertakings are able to survive, the prohibition constitutes a serious infringement of the right to property which is not justified in the general Community interest. The German Government contends that the sole effect of the various solutions which the Commission claims it put forward in order to resolve the problems facing the undertakings concerned is to give them a period of grace before their business ceases. The German Government does not regard that as a solution. Wine production is the distinctive and traditional activity of the majority of the undertakings concerned. Even in the case of those undertakings with a diversified business the change would involve expenses and investment costs which are intolerable and not objectively justifiable. Consequently, the measure in question constitutes a serious encroachment on the right to property and the freedom to choose a trade or a profession; it is not justified in the general Community interest.

26The Commission considers that the measure in question constitutes a lawful restriction on the exercise of fundamental rights which is justified by the fact that it was adopted in the interests of the Community. The freedom to pursue a trade or a profession is merely restricted with the lawful aim of protecting the proper production of wines, which is indispensable for the development of a financially autonomous market in quality wines psr. Similarly, the right to property is not affected as such since the measure at issue merely restricts, in a lawful manner which is in proportion to the interests of the Community, the use or property. The Commission contends that the effect of the measure at issue is not to destroy the undertakings concerned. The production of quality wines represents only one part of the production of wines and any difficulties that might arise as a result of the prohibition of such processing could have been dealt with during the transitional periods, thus enabling the undertakings concerned to adjust to the new situation created by Community law. It was precisely for that reason that the Commission allowed a considerable period of time to pass before commencing the procedure against Germany for its failure to fulfil its obligations.

27It should be observed in the first place that the provision at issue does not affect the existence of the undertakings producing quality wines psr or the substance of the freedom to choose a trade or a profession. It bears not directly but merely indirectly on a related right since the restrictions contained therein have some effect upon the possible ways in which producers run their business and, solely to that extent, upon the pursuit of a trade or a profession.

28In the second place it should be stated that the provision at issue forms part of the general framework of the common organization of the market and in particular of the policy of quality in wines. It seeks by appropriate means to achieve the objective of the rules governing the matter and consequently that of Article 39 of the EEC Treaty, which constitutes an objective of general interest pursued by the Community.

29In the light of that objective of general interest the restriction imposed by the provision at issue does not involve any undue restriction on the exercise of fundamental rights.

30It is therefore necessary to reject the German Government's third submission as well.

31On the basis of the foregoing considerations it must be concluded that the application is well founded.

Costs

32Article 69 (2) of the Rules of Procedure provides that the unsuccessful party is to be ordered to pay the costs.

33However, under the first subparagraph of Article 69 (4) of those Rules a party who discontinues or withdraws from proceedings is to be ordered to pay the costs, unless the discontinuance or withdrawal is justified by the conduct of the opposite party.

34In this case the Commission's application and its subsequent withdrawal of some allegations were caused by the behaviour of the Federal Republic of Germany which adopted the measures necessary to fulfil its obligations only after the Commission had lodged its application. The Federal Republic of Germany must therefore be ordered to pay the whole of the costs since it has failed in its submissions with regard to the remaining allegation.

Operative part

On those grounds,THE COURThereby

(1).Declares that, by authorizing the production of quality wines produced in specified regions outside the specified regions or their immediate proximity, the Federal Republic of Germany has failed to fulfil its obligations under the EEC Treaty and Article 2 (1) of Regulation (EEC) No 1698/70 of the Commission of 25 August 1970 (Official Journal, English Special Edition 1970 (II), p. 579).

(2).Orders the Federal Republic of Germany to pay the costs.

Delivered in open court in Luxembourg on 18 September 1986.